(CNN) -- The White House insists that it was entirely former Sen. Tom Daschle's decision to withdraw his nomination, but some observers say he didn't have a choice. Despite the controversy over his tax records and his work in a field that some consider lobbying, Daschle was expected to be confirmed. His withdrawal shocked Capitol Hill, and Democratic colleagues expressed regret over his decision. "I think one of the major factors had to be that the political climate has changed radically just in the last couple of weeks," CNN Senior White House Correspondent Ed Henry said. President Obama ripped Wall Street executives last week for their "shameful" decision to hand out $18 billion in bonuses in 2008 while accepting federal bailout money.

The next day, news broke that Daschle hadn't paid his taxes in full. Daschle said Monday that he was "deeply embarrassed" for a series of errors that included failing to report $15,000 in charitable donations, unreported car service and more than $80,000 in unreported income from consulting. Daschle recently filed amended tax returns and paid more than $140,000 in back taxes and interest for 2005-07. "That, in this political climate, really tripped up Tom Daschle because it looked awful politically for this White House," Henry said. At a news conference Tuesday afternoon, press secretary Robert Gibbs insisted that the White House did not pressure Daschle to step down. Pressed on whether Daschle was given any sort of signal to resign, Gibbs said, "I don't know how much more clear I could be. The decision was Sen. Daschle's."

A Daschle ally familiar with his thinking said Tuesday that he was not aware of any White House pressure on the former Senate majority leader to withdraw his nomination. Asked whether Daschle was pushed, the source said, "things don't work that cleanly." The issue was not whether Daschle could "survive"; it was what that process "would do to Obama" and his health care reform and economic agenda. It's a question of the "price of that confirmation," he said. The source said Daschle read the Tuesday New York Times editorial urging him to withdraw from consideration but would not say whether that might have played a part in his decision. "Tom has been a politician for a very long time," the source said. "He understands this town. He made a mistake; he apologized, but timing matters. There was a critical mass building." Obama senior adviser David Axelrod said he thought Daschle made the decision Tuesday morning.

"I have to believe that Sen. Daschle having spent as many years as he has up here had a clear picture that there was going to be a delay, and I think he didn't want to contribute to that. In announcing his withdrawal, Daschle said it was an honor to be chosen to lead the reform of America's health care system. "But if 30 years of exposure to the challenges inherent in our system has taught me anything, it has taught me that this work will require a leader who can operate with the full faith of Congress and the American people, and without distraction," he said in a statement. "Right now, I am not that leader and will not be a distraction. Mark Preston, CNN's political editor, pointed out that Daschle has a "history of making 11th-hour decisions." Six years ago, Daschle made a last-minute decision not to run for president after he had been all set to go. "I think that the Tom Daschle we saw yesterday was all set to go, and then the pressure started mounting ... and then he decided to pull out," Preston said.

Although he was expected to be confirmed, it was also expected that he'd have to undergo a bruising confirmation hearing that could have led to negative headlines for Obama. As news broke of the withdrawal, some senators said they were sad to see Daschle step aside, but others said it was the right thing to do. "I'm in shock. I didn't know that. I don't know what happened," said Sen. Dianne Feinstein, D-California. "I talked to him ... the night before last, and he showed no signs of withdrawing." Feinstein praised Daschle as rare person who could get something like health care through the Senate and said she wishes he had not withdrawn. "I have great faith in him." Sen. John Cornyn, R-Texas, said Daschle "did a service to President Obama" by stepping aside. "I think it really would have looked bad for the Senate to close ranks around a fellow member and sort of reinforce the idea that they were going to protect a member as part of the good ol' boys club," he said.

Daschle has a lengthy history with members of Congress. He represented South Dakota in the House of Representatives for four terms, and he served in the Senate for three terms. He was the Senate majority leader from June 2001 to January 2003 and served as the minority leader before losing his re-election bid in 2005. Sen. John Ensign, R-Nevada, said Daschle "saved the president from being embarrassed" by withdrawing. Sen. Max Baucus, chairman of the Senate Finance Committee, said he was "a little stunned" by Daschle's decision. "I thought he was going to get confirmed. I thought -- he's a good man, and I thought he'd be confirmed. I'm surprised," said Baucus, D-Montana. Sen. John Kerry, D-Massachusetts, insisted that Daschle had owned up to his mistakes. "He's made his decision, I respect his decision, and we go on from there," Kerry said. Daschle's resignation came hours after Nancy Killefer's withdrawal as Obama's chief performance officer, a new post in the administration. Officials said privately the reason for Killefer's withdrawal was unspecified tax issues. The much-touted post was designed to scrub the federal budget.

[...] the decision to use that procedure rather than present an indictment to a grand jury suggests that Fitzgerald made a last-minute decision to have Blagojevich arrested, perhaps to forestall the governor appointing himself as a successor to Obama.

Not really! In any event, don't you think Quinn's calling on Burris to resign are self-serving?

Gov. Patrick Quinn today called on U.S. Sen. Roland Burris to resign amid the furor of questions over his contacts with former Gov. Rod Blagojevich. Burris should "act as quickly as possible for the best interests of Illinois," Quinn said at a late morning news conference. "This should not be a matter that takes weeks." Quinn called on lawmakers to give him the power to appoint a temporary successor to the Senate until a special election could be held.

Many Republican lawmakers argued Quinn has the constitutional authority to order a special election, which could have the effect of forcing Burris from office. But Quinn said today he doesn't feel he has the constitutional authority to order a special election. If Burris quits, Quinn said he would look for a temporarily replacement who has no interest in running in a special election for a longer term. Quinn, who said it was a mistake for Burris to take the appointment, has not spoken to the junior senator and fellow Democrat about resigning.

"He will always be held in high regard by the people for making this decision," Quinn said about a potential resignation. "The common good is really what we have to focus on today." Quinn suggested Burris was "harming" the common good by remaining in office amid questions about various affidavits "correcting this and that" about his contact with Blagojevich allies. State Treasurer Alexi Giannoulias also added his voice to the calls for Burris to step down. "Given the revelations during the past several days, the situation has become toxic and only serves as a sideshow during a time when lawmakers should be addressing the financial crisis that is impacting families across Illinois," Giannoulias said in a statement. "Senator Burris' statements have been misleading at best and make clear he was not upfront or forthright during his testimony before Illinois House Impeachment Committee," he added. "He violated the public's trust, which sorely needed restoring following the Governor's impeachment."

[...] the decision to use that procedure rather than present an indictment to a grand jury suggests that Fitzgerald made a last-minute decision to have Blagojevich arrested, perhaps to forestall the governor appointing himself as a successor to Obama.

Not really! In any event, don't you think Quinn's calling on Burris to resign are self-serving?

Gov. Patrick Quinn today called on U.S. Sen. Roland Burris to resign amid the furor of questions over his contacts with former Gov. Rod Blagojevich. Burris should "act as quickly as possible for the best interests of Illinois," Quinn said at a late morning news conference. "This should not be a matter that takes weeks." Quinn called on lawmakers to give him the power to appoint a temporary successor to the Senate until a special election could be held.

Many Republican lawmakers argued Quinn has the constitutional authority to order a special election, which could have the effect of forcing Burris from office. But Quinn said today he doesn't feel he has the constitutional authority to order a special election. If Burris quits, Quinn said he would look for a temporarily replacement who has no interest in running in a special election for a longer term. Quinn, who said it was a mistake for Burris to take the appointment, has not spoken to the junior senator and fellow Democrat about resigning.

"He will always be held in high regard by the people for making this decision," Quinn said about a potential resignation. "The common good is really what we have to focus on today." Quinn suggested Burris was "harming" the common good by remaining in office amid questions about various affidavits "correcting this and that" about his contact with Blagojevich allies. State Treasurer Alexi Giannoulias also added his voice to the calls for Burris to step down. "Given the revelations during the past several days, the situation has become toxic and only serves as a sideshow during a time when lawmakers should be addressing the financial crisis that is impacting families across Illinois," Giannoulias said in a statement. "Senator Burris' statements have been misleading at best and make clear he was not upfront or forthright during his testimony before Illinois House Impeachment Committee," he added. "He violated the public's trust, which sorely needed restoring following the Governor's impeachment."

Sen. Roland Burris refused to resign on Tuesday, rebuffing a call from the Senate's No. 2 Democrat who made it clear that the embattled Illinois lawmaker has little hope next year of winning the seat vacated by President Barack Obama. "I told him that under the circumstances, I would resign," fellow Illinois Sen. Richard Durbin told reporters after an hour-long meeting with Burris. "He said, 'I'm not going to resign."' "I can't force him," Durbin added. Burris was appointed by disgraced former Gov. Rod Blagojevich, who was impeached and driven from office after he was accused of trying to sell the Senate seat. Burris repeatedly changed his story about how he was appointed. He is facing calls for his resignation after he admitted trying to raise money for Blagojevich. Burris has said he did nothing wrong.

Emerging from the hour-long private meeting with Durbin, Burris looked a bit shaken and inexplicably said he was under orders not to comment, other than to say the session was a "great discussion." Burris has faced intense pressure from from all quarters, from politicians to home state newspapers to black ministers clamoring for him to step down. Illinois Gov. Pat Quinn said last week Burris should resign for the good of the state, arguing that the controversy surrounding his appointment has cast a shadow over his service in the Senate. In their meeting, Durbin said he told Burris that support among other Democrats was eroding because of Burris' shifting account of whether he tried to raise money for Blagojevich. And in the careful language of the Senate, Durbin said he made clear that if Burris tried to run for the seat next year, he would not have much if any support from Senate Democrats. Consistent with a Senate appointment, Burris would have to win the seat outright next year.

"I asked him if he would be a candidate in 2010 and he said he had not made up his mind," Durbin said. "I told him I thought it would be extremely difficult for him to be successful in a primary or a general election under the circumstances." The conversation followed Burris' exchange earlier in the day with Senate Majority Leader Harry Reid, D-Nev., on the Senate floor. "I said, 'How was your break?' He said, 'Fine. How was yours?"' Reid told reporters afterward. "I said, 'Fine.' OK?" Asked whether Reid thinks that Burris should resign, spokesman Jim Manley said: "That is for him to decide." The chilliness that greeted Burris in Washington came after outright demands for his resignation in Illinois.

Burris testified in January before the Illinois House committee that recommended Blagojevich's impeachment that he hadn't had contact with key Blagojevich staffers or offered anything in return for the seat. Blagojevich faces charges of trying to sell Obama's former Senate seat, though he denies wrongdoing. But just more than a week ago, Burris released an affidavit saying he had spoken to several Blagojevich advisers, including Robert Blagojevich, the former governor's brother and finance chairman, who Burris said called three times last fall asking for fundraising help. He changed his story again last week when he admitted trying, unsuccessfully, to raise money for Blagojevich. Illinois lawmakers have asked local prosecutors to look into perjury charges, and a preliminary Senate Ethics Committee inquiry is under way. Even the White House said last week that Burris should take the weekend to consider his future. "The national Democrats needed his vote, but they found that he hung them out to dry," said Kent Redfield, a political science professor at the University of Illinois in Springfield.

One economist who's not pleased with the way the bailout of Citigroup is structured is Nobel Prize winner, and Princeton economics professor, Paul Krugman. Krugman acknowledged that the bailout was necessary, but wrote on his blog that the structure of this bailout is an 'outrage':

Quote

A bailout was necessary -- but this bailout is an outrage: a lousy deal for the taxpayers, no accountability for management, and just to make things perfect, quite possibly inadequate, so that Citi will be back for more.

But is the government bailout of Citigroup well-structured, and are taxpayers getting a fair deal here? Krugman, author of "The Return of Depression Economics and the Crisis of 2008" (Norton), says on first read, no. "Most of the people who have looked at it, the small hours of this morning, have said this is a lot of taxpayer risk in return for not much," Krugman told co-anchor Maggie Rodriguez. "It looks like a very sweet deal for Citigroup management, very sweet deal for Citigroup shareholders, to the extent they have anything left -- not very good for the taxpayer. This was not good." With other bailouts seemingly having done nothing to boost consumer confidence, Rodriguez asked, why do it if it is not well-structured? "Well, you know, things could be worse, you know? That's been the moral of this crisis: things can always be worse,' Krugman said, "and they have been getting worse."

Citigroup Inc. is in talks with federal officials that could result in the U.S. government substantially expanding its ownership of the struggling bank, according to people familiar with the situation. While the discussions could fall apart, the government could wind up holding as much as 40% of Citigroup's common stock. Bank executives hope the stake will be closer to 25%, these people said. Any such move would give federal officials far greater influence over one of the world's largest financial institutions. Citigroup has proposed the plan to its regulators. The Obama administration hasn't indicated if it supports the plan, according to people with knowledge of the talks. When federal officials began pumping capital into U.S. banks last October, few experts would have predicted that the government would soon be wrestling with the possibility of taking voting control of large financial institutions. The potential move at Citigroup would give the government its biggest ownership of a financial-services company since the September bailout of insurer American International Group Inc., which left taxpayers with an 80% stake.

The move wouldn't cost taxpayers additional money, but other Citigroup shareholders would see their stock diluted. A larger ownership stake by the government could fuel speculation that other troubled banks will line up for similar agreements. Bank of America Corp. said that it isn't discussing a larger ownership stake for the government. "There are no talks right now over that issue," said Bank of America spokesman Robert Stickler. "We see no reason to do that. We believe the goal of public policy should be to attract private capital into the bank, not to discourage it."

As if the economy wasn't already fighting enough strong headwinds, the risk of capital shortfalls and outright failure of the nation's banks is rising. The Federal Deposit Insurance Corp., the federal agency that backs bank deposits, last week reported the biggest jump in "problem institutions" it has seen since the savings and loan crisis of the late 1980s. While the extent of the problem is still low by historic standards, it identified 76 banks as in trouble - a 52% increase from a year ago. FDIC Commissioner Sheila Bair among regulators set to testify Tuesday at a Senate Banking Committee hearing on the state of the banking industry. Experts say the 76 banks now under scrutiny are likely only a small part of the problems now looming over the banking sector.

Citigroup Inc. is in talks with federal officials that could result in the U.S. government substantially expanding its ownership of the struggling bank, according to people familiar with the situation. While the discussions could fall apart, the government could wind up holding as much as 40% of Citigroup's common stock. Bank executives hope the stake will be closer to 25%, these people said. Any such move would give federal officials far greater influence over one of the world's largest financial institutions. Citigroup has proposed the plan to its regulators. The Obama administration hasn't indicated if it supports the plan, according to people with knowledge of the talks. When federal officials began pumping capital into U.S. banks last October, few experts would have predicted that the government would soon be wrestling with the possibility of taking voting control of large financial institutions. The potential move at Citigroup would give the government its biggest ownership of a financial-services company since the September bailout of insurer American International Group Inc., which left taxpayers with an 80% stake.

The move wouldn't cost taxpayers additional money, but other Citigroup shareholders would see their stock diluted. A larger ownership stake by the government could fuel speculation that other troubled banks will line up for similar agreements. Bank of America Corp. said that it isn't discussing a larger ownership stake for the government. "There are no talks right now over that issue," said Bank of America spokesman Robert Stickler. "We see no reason to do that. We believe the goal of public policy should be to attract private capital into the bank, not to discourage it."

As if the economy wasn't already fighting enough strong headwinds, the risk of capital shortfalls and outright failure of the nation's banks is rising. The Federal Deposit Insurance Corp., the federal agency that backs bank deposits, last week reported the biggest jump in "problem institutions" it has seen since the savings and loan crisis of the late 1980s. While the extent of the problem is still low by historic standards, it identified 76 banks as in trouble - a 52% increase from a year ago. FDIC Commissioner Sheila Bair among regulators set to testify Tuesday at a Senate Banking Committee hearing on the state of the banking industry. Experts say the 76 banks now under scrutiny are likely only a small part of the problems now looming over the banking sector.

The ABC of Capitalism

The driving force of capitalism is not production for use or need, or even production for the market as such, but the accumulation of capital  the making of profit. In its simplest form, the process of accumulation begins with a mass of capital in the money form M, which is turned into a new and greater quantity of capital, M', that is, the initial quantity of capital plus an increment, ΔM ("delta M"). The source of this increment is the surplus value extracted from the working class in the process of production. Money, as capital, is used to purchase the means of production plus the labor power of workers. This labor power, or capacity to work, is a commodity available in the market, along with other commodities. The value of this commodity  the labor power that the worker sells to the capitalist in the wage contract  is determined by the value of the food, clothing, housing and other necessities of life needed to sustain the worker and the workers' family. But the value of these necessities (the worker's wage) is not the same as the value added by the worker to the commodities supplied by the capitalist in the course of the production process. In other words, the worker's wage is less than the value he or she contributes in the production process. This difference is the source of surplus value. Labor power is consumed in the production process, but the commodities produced by it have additional, or surplus, value embodied in them. They are then sold on the market to realise M', comprising the initial M plus an increment ΔM  the profit made by the capitalist out of the production process.

The capitalist mode of production sets in motion a vast accumulation of the forces of production. As Marx noted in the Communist Manifesto, in contrast to all previous modes, capitalism involves the continuous revolutionizing of the means of production. This is inherent in the system itself. Accumulation depends on increasing the productivity of labor, and the key to increasing labor productivity is the development of the productive forces. The pressure of competition drives this process forward. Every section of capital must strive to develop the productivity of labor on pain of extinction. This ever-increasing scale of the production process induces changes in the financial structure of the capitalist economy. It means that the capital now required to set in motion the process of accumulation  the initial amount, M  far outgrows the capacity of individual capitalists. It has to be drawn from the resources of society as a whole.

Two great financial developments make this possible: the rise of the credit and banking system, and the formation of joint-stock or shareholding companies. Credit, made available from the pool of money gathered up in the hands of the banks from all corners of society, provides the capitalist firm with resources on a scale far beyond the capacities of an individual or even a group of individuals. The functioning capitalist, Marx explains, becomes a mere manager of other people's money. Without this money, Rupert Murdoch is an ordinary citizen. But with the resources of numerous banks placed at his disposal, he is a colossus, invited to deliver the Boyer lectures on ABC radio, explaining how we all should live. In return for the provision of capital, the bank receives a portion of the surplus value extracted from the working class in the form of interest payments. The loan agreement with the bank, or the issuing of a bond by the company, entitles the creditor to regular interest payments. That is, the holder owns a title to income.

In the case of the joint stock company, established through the issuing of shares, the shareholders, in return for supplying money capital, receive a title to property. They do not have a right to a portion of the company. As a shareholder of a retail chain, you cannot go into a store and claim some of the merchandise, on the grounds that you are a part owner of it. The merchandise is the property of the incorporated person, the company. What you are entitled to is a portion of the profit, in the form of a dividend. With the development of credit and shareholding we have the creation of new markets  financial markets  in which these titles to income, bonds and shares, are bought and sold. And as the prices of these financial assets rise and fall, so profits can be made by buying and selling them. There are not two forms of capital. The money that was supplied, either as credit or through share subscription, has been deployed to purchase labor power and the means of production. It has become productive capital engaged in the process of extracting surplus value from the working class. It does not exist in the form of money as well. The shares and bonds are what Marx called "imaginary" capital, or fictitious capital. They are, in the final analysis, titles to income, to a share of the surplus value extracted by productive capital.

However, in the world of finance, of fictitious capital, it is possible to make great profits by buying and selling financial assets. This is an enchanted world, a world of illusion, because here it is possible to make money simply through the manipulation of money (Think Soros!) Money, through the payment of interest, seems to accumulate as a natural function of its existence. Money begets money as Nature herself nurtures the growth of plants and animals. How could labor possibly be the source of all profit when clever manipulations and trades by financial operators can result in the accumulation of vast wealth? The enchanted world of finance not only engenders illusions in the minds of its inhabitants and those who profit from it, but also in the minds of those who would try and abolish it. From the very earliest days, financial markets have been denounced by those who would like to expunge or at least control them, but without overturning the capitalist economy as a whole. "Regulate the bad side of capitalism!" is their catch-cry, so that the good  that is, capital in the productive form  might be able to grow and society advance. Insofar as finance capital is necessary, ensure it works for society as a whole! But, as Marx explained more than 150 years ago, such efforts are based on an illusion. The "good" cannot be separated from the "bad" and, in fact, it turns out that the "bad" is often the very driving force of historical development. As the founder of scientific socialism noted in relation to the joint stock company: "The world would still be without railroads if it had to wait until accumulation had got a few individual capitals far enough to be adequate for the construction of a railroad. Centralization, however, accomplished this in a twinkling of an eye, by means of joint-stock companies."

One of the most important indicators is the level of debt. In 1981 it is estimated that the US credit market was 168% of GDP. By 2007 it was 350%. Financial assets were 5 times larger than GDP in 1980, but over 10 times as large in 2007. Moreover this debt has been increasingly used to finance operations in the financial markets themselves, rather than to expand productive capital. The debt taken on by banks and other financial institutions rose from 63.8% of US GDP in 1997 to 113.8% in 2007. Debt issued by US financial institutions nearly doubled between 2000 and 2007. And this debt has balanced, ever more precariously, on an ever smaller capital base. In 2004, large investment banks had an asset to equity ratio (a measure of the extent of debt leveraging) of 23. By 2007 this had risen to 30. Goldman Sachs, for example, used its $40 billion of equity as the foundation for assets worth $1.1 trillion. Merrill Lynch's $1 trillion of assets rested on $30 billion of equity The reason for such large leveraging ratios lay in the enhanced profit rates they provided. If an asset purchased for $100 million increases in value by 10% during a year (worth $110 million at the end of the year), and if the purchase of this asset is financed by equity capital of $10 million and borrowings of $90 million, at an interest rate of 5%, then the profit at the end of the year, after interest of $4.5 million (5% of $90 million) has been paid, will be $5.5 million. This means a profit of $5.5 million has been made on an initial outlay of $10 million, giving a rate of return of 55%.

The key to the process is the the increase in asset values, fueled by cheap credit. If money is cheap it will pour into asset markets, bidding up prices, and providing large profits. The market may be in stocks and shares, or in commodities, or in housing. Of course, it does not take any great intellectual capacity to see that such Ponzi schemes, involving the creation of asset bubbles, must eventually collapse. Why then did not at least some in financial circles call a halt? Why the herd mentality? Involved here were not individual failings or a lack of intellect, but the very structure of the financial market itself. So long as credit is cheap and asset prices are rising, every financial institution is forced to participate. If, say, a particular fund manager sees the writing on the wall and decides to opt out, his institution will lose out in the competitive struggle for profits. His clients will simply go elsewhere, where bigger profits are on offer. It does not matter that he is right, and a collapse will eventually take place. So long as the collapse occurs across the market, no one involved loses their competitive position. As the CEO of Citigroup Chuck Prince put it in July 2007, on the eve of the subprime crisis: "When the music stops, in terms of liquidity, things will be complicated. But as long as the music is playing, you've got to get up and dance. We're still dancing."

Now the music has stopped. The subprime mortgage crisis was the trigger for the implosion that is now seeing the collapse of the mountain of debt accumulated not just over the previous few months, or even years, but for several decades. To understand the mechanisms behind this implosion, take the following simple example. Suppose that an asset valued at $100 million, which had an expected return of $10 million, or 10%, now only returns $5 million or 5%, then the value of that asset will drop to $50 million. To put it another way, an investor seeking a rate of return of 10% would have been willing to pay $100 million for the asset. Now he will only pay $50 million. The value of the asset in the market has halved. But suppose the asset has been purchased with borrowed funds, say $90 million. Notwithstanding the fact that the market value of the asset has declined, the debt to the bank remains $90 million. The asset, however, is now worth less than the debt incurred to purchase it. How will the bank be repaid? Other assets may have to be sold to obtain cash. But to the extent that this takes place across the board, the value of those particular assets will fall and the crisis will worsen.

Fictitious capital is a claim on income, the source of which, in the final analysis, is the surplus value extracted from the working class. But capital can grow far beyond the basis on which it ultimately rests. Financial market operations result in a massive growth in fictitious capital. At a certain point, however, this expansion comes to a halt and a crisis erupts. The crisis is an expression of the reassertion of the fundamental laws of the capitalist economy. Its source lies in the fact that the claims of capital have vastly outgrown the available mass of surplus value. Capital must seek to overcome the imbalance. How is this accomplished? Through two interconnected processes: by intensifying the exploitation of the working class in order to expand the mass of surplus value and, above all, by bankrupting and eliminating whole sections of capital, thereby wiping out their claims to the available surplus value, and restoring the shares of those sections of capital that remain. In a recent speech Kevin Warsh, a governor of the US Federal Reserve System, noted that the issues in the current financial crisis went far beyond subprime mortgages and pointed to the wider processes now unfolding. "If the challenges to the economy were predominantly about the value of housing stock, my focus today," he told his audience, "would be narrower than the establishment of a new financial architecture. So, what diagnosis, beyond housing weakness, is consistent with the unprecedented levels of volatility and dramatic financial market and economic distress? We are witnessing a fundamental reassessment of the value of virtually every asset everywhere in the world."

Acceptance of the Friedman hypothesis has meant that whereas Mellon's advocated liquidation in response to a financial crisis, the Fed's policy, under Alan Greenspan and now Ben Bernanke, has been monetisation. This began in 1987, when Greenspan, shortly after his appointment, reacted to the October stock market crash by opening up the Fed's credit spigots. In every succeeding financial crisis  the Asian crisis of 1997-98, the Russian default of 1998, the collapse of Long Term Capital Management through to the collapse of the tech.com and share market bubble in 2000, and the subprime crisis of 2007  the same policy has been pursued. Interest rates have been cut and credit conditions eased. Throughout his term, Greenspan insisted the Fed's task was not to try to prevent the formation of asset bubbles or to deflate them when they emerged, but to clean up after they collapsed. In practice, this meant that the collapse of one bubble would be countered by the creation of another through the provision of cheap credit.

Bernanke shares Greenspan's outlook. He defined his position in September 2004 thus: "For the Fed to interfere with security speculation is neither desirable nor feasible ... If a sudden correction in asset prices does occur, the Fed's first responsibility is ... to provide ample liquidity until the crisis has passed." For the 20-year period following the stock market collapse of 1987 this modus operandi appeared to be effective. Now it has broken down. In the 16 months since the current crisis first emerged, various attempts have been made to halt it through bailout operations. Unlike the experiences of the 1980s, the 1990s and the early years of the present decade, they have, however, failed. In early October, the US Congress granted Treasury Secretary Henry Paulson $700 billion in bailout funds under the Troubled Asset Relief Program (TARP). The TARP's stated purpose was to buy up so-called "toxic assets" from the banks and major financial institutions. In effect this meant using the resources of the US Treasury to maintain fictional asset values across the board. But on November 12, barely a month after the passage of the TARP, Paulson announced he was abandoning this plan. Asked to explain why, he replied: "The situation worsened, the facts changed."

Paulson was impaled on the horns of a dilemma. If the government paid the true value for these near worthless assets, the banks that held them would be forced to take massive losses. On the other hand, if the government paid the inflated values necessary to avoid these bank losses, the $700 billion would be but a drop in the bucket. In other words, Paulson's change of mind expressed his recognition that the crisis was so large that the previous 20-year policy of pumping up asset values could no longer be continued. Whole sections of capital were going to have to be liquidated. Thus the TARP funds are being used to recapitalise banks and other financial institutions  at least those deemed worthy of saving, or with the closest connections and ties to the administration  while others will be allowed to go to the wall. In short, the attempt to evade the laws of the capitalist economy through the use of monetary policy has come to an end. Those laws are now asserting themselves as they did in the 1930s, in the same manner that, as Marx explained, the law of gravity asserts itself when a house collapses about our ears.

What are the origins of this crisis? How did it develop to the extent that it now threatens the world's people with the kind of economic, social and political disasters that characterized the 1930s? Is this a crisis of policy, of inherent greed, a product of slack regulation by central bankers and governments? Are we perhaps all to blame, or does the crisis arise out of contradictions inherent in the foundations of the capitalist mode of production? Capitalist society is marked by a profound contradiction: between the material development of the productive forces, which it promotes, and the social relations within which this development takes place. If we study the economic history of the past 150 years this contradiction  between the material productive forces and the social relations of production  has emerged in two forms. The first is the contradiction between the global development of the productive forces under capitalism, and the nation-state system in which the political power of the bourgeoisie is grounded. That contradiction has once again assumed an acute form.

The second is the contradiction between the growth of the productive forces on the one hand and the social relations of capitalist production, based on the private ownership of the means of production and the exploitation of the working class through the system of wage labor, on the other. This contradiction manifests itself in the tendency of the rate of profit to fall and the crises produced by it. The tendency of the rate of profit to fall arises from the fact that while labor is the sole source of surplus value, and therefore profit, expenditure on labor power comprises an ever smaller portion of the total capital outlaid by the capitalist. This is an expression of the continuing growth of the productive forces and increased productivity of labor. But what it means is that to expand the total capital at the same rate, the same amount of labor must produce an ever-increasing amount of surplus value.

The origins of the crisis lie in the crisis of capitalism that erupted at the beginning of the 1970s  the end of the post-war boom  and the way it was overcome. The demise of the post-war boom was marked by two major developments: the collapse of the Bretton Woods Agreement of 1944, which had ushered in the system of fixed currency exchange rates, and a sharp fall in the rate of profit in every major capitalist country. This profit decline led to a recession in 1974 followed by the onset of stagflation  high inflation combined with high unemployment  at the end of the decade. The Bretton Woods Agreement was one of the pillars of the post-war economic order. It fixed the value of national currencies in terms of the US dollar, which, in turn, was tied to gold at the rate of $35 per ounce. The agreement was put together after more than two years of sustained work in British and American government circles to ensure the resumption of world trade, the fear being that if this were not done and there was a return to depression, revolution would erupt.

The agreement did its work, resulting in an expansion of trade and then investment. However, this very expansion exposed the contradiction lying at the heart of the Bretton Woods system  between a global economic expansion and currency systems still grounded on the national state. For a time, the overwhelming economic superiority of the United States was able to overcome this contradiction as the dollar, backed by gold, functioned, in effect, as world money. But by the end of the 1960s a crisis was developing. It took the form of a dollar overhang  the dollars outside the United States in world markets vastly exceeded the amount of gold held in Fort Knox that was supposed to be backing them. Various figures indicate what was underway. By 1968 the volume of dollars circulating outside the United States had grown to $38.5 billion, from just $5 billion in 1951. This amounted to $23 billion more than US gold reserves. Moreover, the money circulating outside the US provided the basis for a new financial network, the so-called eurodollar market. Banks found dollar resources were available that were outside the control of national authorities.

Throughout the 1960s attempts were made by the Kennedy, Johnson and Nixon administrations as well as by British authorities to control the international movements of money and maintain the stability of the Bretton Woods system. But their attempts were thwarted by the operations of the euro-dollar market. With efforts to regulate being undermined at every turn, US President Nixon cut the Gordian knot and removed the gold backing from the US dollar on August 15, 1971. The alternatives, such as imposing a recession in the US to reduce the trade deficit, clamps on US foreign investment and a reduction in US global military activities at the height of the Vietnam War, aimed at reducing the outflow of dollars, were simply not viable. After August 1971 attempts to maintain a regulated currency system rapidly collapsed and in 1973 the floating dollar regime began. In the final analysis, Bretton Woods foundered because the very expansion of world trade and world investment to which it had given risea global expansion of capital could not be contained within a system of national regulation. The contradiction between world economy and the nation-state system had reasserted itself.

We now need to trace the development of the other central contradiction. Following the immediate post-war economic and political restabilization, the ensuing boom seemed like a golden age, which would continue indefinitely. Now, it was claimed, the seemingly intractable problems that had beset world capitalism after the eruption of World War I in 1914 could be overcome, or at least kept at bay. This would be done through the judicious use of so-called Keynesian techniques of economic management, based on the regulation of global capital flows on the one hand and the use of demand-management techniques by national governments on the other. However, the "golden age" lasted barely a generation. By the end of the 1960s the rate of profit was beginning to fall. This tendency had been temporarily overcome by the extension of the Fordist system of assembly-line production from the United States to the rest of the world. Assembly line production, through the enormous increases in productivity it effected, had increased the rate at which surplus value could be extracted from the working class, so boosting profits. But after a quarter of a century, the process of catching up was coming to an end.

In 1974-75, after a period of rapid inflation, the world economy entered a recession. Recessions had developed during the boom, but they had given way to periods of even greater economic growth. The curve of capitalist developmentn had continued to move up. That was not what occurred after the recession of 1974-75. Pre-recession conditions were not restored and world capitalism entered a period of much slower growth, marked by rising unemployment and inflation  a phenomenon dubbed "stagflation." Keynesian measures, based on government spending to boost the economy, proved to be of no avail. In fact, they only worsened the situation by increasing the rate of inflation. Companies failed to respond to increases in effective demand by boosting production, as Keynesian theory suggested they should, but sought instead to lift their depressed profit rates by increasing prices while looking, at the same time, to cutting their workforce. These great shifts in the economic base of society, starting from the mid-1960s, gave rise, as Marx had explained they would, to far-reaching political shifts. The period from 1968, beginning with the May-June events in France, to 1975, and the downfall of the right wing Salazar dictatorship in Portugal, was one of immense revolutionary upheavals. In every case, however, the struggles of the working class were betrayed by its social democratic and Stalinist leaderships, with the assistance of various radical tendencies.

All of them promoted the illusion, in one way or another, that the bureaucratic apparatuses dominating the working class could be pressured to the left. The betrayal of the revolutionary strivings of millions of workers around the world, and the resultant restabilization of capitalist rule, did not signify that the economic contradictions lying at the base of this political turbulence had been overcome. How they were temporarily alleviated, and the way the measures that were adopted led to their eruption once again, but in an even more explosive form, constitutes the history of the world economy and the global financial system from the 1970s to the present day. The collapse of the Bretton Woods Agreement in 1971 marked the end of the dollar's role as a stable anchor of the world monetary system. More than that, it signified that no national currency could take on that role.